Assessing an Opportunity – Market Readiness

“Market Not Ready!!“

1. Neural network software is available since 1980s. This algorithm mimics the structure of the brain. It improves itself by feedback from various experiences, just the way humans learn by various life events. This was conceived to be exciting technology as computers can teach themselves & develop solutions which no human can develop from scratch. However, neural networks have shown little commercial success!!

2. Desktop Video Conferencing has been there since 1990s with various companies like xerox, Intel, IBM, Picturetel investing in it. Inventors swear by this technology & companies keep on making billion dollar business projections. It is not bandwidth or technology problem. However, companies see little commercial success.

Industry is agog with various such stories every year. What makes some products/technologies  fail commercially whereas few becomes successful? One of important measures of opportunities is testing market readiness. Answering the question “Why Now”? As technologies evolve & costomer preferances’ change, it is important to assess if market is ready for. Testing market readiness involves answering following two questions.

1. Is there a critical mass in early stages? As product is introduced to market, there is certain market segment that either has compelling value proposition or has enough emotional need to buy. Later segment is essentially enthusiasts who want to be first in their group to use any new product. They have enough free cash to invest. They are not unduly concerned about return on investment. But, what is important here is to identify these customers & assess their market size. There should be a critical mass of these customers which should make project viable. This segment should provide enough cash flow & ROI to satisfy investor demands. Majority of companies fail to sustain themselves during this phase & gets shelved for non-viability. Apple’s iPhone is classic example. This product has created enough interest in early users to sustain itself.
2. Can product satisfy needs of mainstream customers? Ultimately products have to satisfy underlying needs of mainstream customers to sustain in market place. It becomes compelling for some companies to invest in products looking at early users. However, emotional needs won’t make products successful in the long run. Companies should ask if opportunity is real? Ability to create real value proposition & ability to serve profitably along with ability to sustain it in long run is essential. Will iPhone be commercial success in the mainstream market in longer run? Answer to that question depends on ability of it to satisfy various real customer problems. Value conscious mainstream customers shall look for utilities rather than fancy features.

Ultimately the companies that succeed are the ones which continuously monitor critical mass of early adopters and ability to transition it to mainstream in the longer run.

Keys to New Product Success(Part-4)- Transformation with strategic partnerships

SWOT analysis has been an important tool, managers & business executives are using to assess new product opportunities. Proponents of this theory argue that parameters internal to organization & external to organization (viz market & competitive scenarios etc) overall help determine the attractiveness of an opportunity. Strengths & weakness are analyzed based on organizational competencies, understanding of customer needs & insights, resources, systems & processes, technology IPs, channels etc in the context of opportunity. The opportunities are evaluated based on market context, macro trends, built in inefficiencies, emergence of critical mass for certain solutions etc.

Though SWOT framework was sufficient for the industry of 20th century, they are not sufficient to fast moving, technology driven industries of 21st century.

Let us ask this question to all organizations ” Will you be satisfied with where your internal strengths can take you to or what articulated opportunities can fetch you?” Little introspection here tells that answer is “No”. Now, the winner is the one who exerts greater control over his destiny, far more than his internal strengths and what current opportunity can offer. They create opportunities & solve in a way that is far superior than their internal capabilities.

Transformation with strategic partnerships: The way to go about is to transform organizational capabilities and effectiveness to much higher level than their strengths & opportunities by forging strategic partnerships. I can’t imagine  a better industry than semiconductor, where companies are transformed their market effectiveness to much higher level than their offerings. These companies compete with each other & at the same time, partner for creating value added products.

For example, ARM has been promoting their microchip as standard & is licensing their core to number of semiconductor companies. Other companies, particularly fabless design houses, build their own differentiated technology on top of ARM core, to offer more successful products. This effective collaboration has helped many smaller design houses to offer much effective products. It helps companies to innovate along their core competencies & at the same time collaborate for more compelling value proposition to customers.

These partnerships are extended to all aspects of value chain. The challenge is to see the synergy in value creation. This can be

• to offer superior product or solution.
• increase measurable customer benefits.
• Reduce costs by ex. supply chain optimization, channel optimization etc.
• Decrease total cost of ownership.
• Increase customer reach or acceptability

Overall, strategic partnerships have potential to transform organizations by creating opportunities that is normally not there and solving them in a way that is normally not possible by conventional organizational limits.

Video on ‘Stanford Design Thinking Process’

Incremental Innovation: Unsung Heroes of Product Development.

Mission Impossible: We hear Superman(ager!) stories ” A product manager conceptualizes a great product idea (when an apple falls on his head!!). There is clear gap in available offerings & segment of customers are waiting for it since years! Big market size, large value creation with sustainable competitive advantage! Engineering team takes up seemingly impossible task & puts in superhuman efforts. Product is developed, tested & later released to site in record time. Revenue bells starts ringing etc.etc….!!”

Such heroic projects make good news stories, often heard in start-ups. Neither such success stories repeatable (if at all!) nor do they mostly make money. They can fail very expensively.

Traditionally products have been developed by this mega project approach – Like talking to all possible users, evaluating all possible competitors, making complete business cases, estimate market size, value proposition, use cases & scenarios, profiling etc. The process is extraordinarily long with various stage gate reviews & go no-go decisions. The financial & management stakes are very high. Companies have to wait 3-5 years before they actually see a dollar of earned profit. Product managers should get specifications 100% right & predict what customers want when product gets launched. Getting insight into what customer would need rather than what they asked for is important. Changing requirements put undue pressure on project schedule, as mega projects lack inherent flexibility to adapt to changing needs.

Mega projects with big budgets & large number of stage-gate-reviews fail to respond to changing technology & market conditions, user preferences or demanding venture capitalists. Companies need to be agile in responding to changing needs, manage risks & be able to show intermediate results.

Incremental Innovation: There is a saying ” easiest way to shorten development cycles is to minimize the work required to develop the product!!”  In incremental innovation approach, a development cycle goes through several, small & end to end cycles. And each cycle is executed at rapid phase with minimum budgets & managed with minimum risks. The teams are empowered to run through cycle without much intervention. There is almost no management stage gate reviews within each cycle.

Financial Advantages:

• Relative investments in each phase is lower.
• Revenue & profits show up much faster. Cash flows are better as there is no need to wait for say 5 years to see a dollar of profit.
• Much less financial risks as strong feedback from market help in adapting or changing investment needs. Surprises appear much earlier in life cycle.

Marketing Advantages:

• It is much easier to forecast customer needs over shorter time horizons, thereby helps to create more accurate products.
• Even if there is a mistake in assessing user needs, it is far easier to correct it.
• In fast moving markets, it gives crucial flexibility & mistakes are not costly.
• Each product introductions has the potential to lock in the customer with switching costs & network externality effects.
• Product gets refined with each introduction as it helps in getting crucial insight into customer needs than what customers explicitly asked for.

Engineering Advantages:

• As requirements are added during execution phase, complexity increases exponentially, putting lot of stress on development.
• Cost of adding new feature is significant as most complexity is due to interfaces & interactions with rest of the system.
• Field problems can not easily be modeled. Hence systems are best tested in actual working conditions.
• As technology changes, it is easier to incorporate at each cycle, rather than making technology commitments for longer time horizon.
• They are very effective in motivating people as they can see results faster.

In summery, incremental innovation enables rapid organizational learning & makes them effective in responding to changing needs & keeping risks manageable.